Would Przedsiebiorstwo Hydrauliki Silowej HYDROTOR S.A. (WSE:HDR) Be Valuable To Income Investors?

Today we'll take a closer look at Przedsiebiorstwo Hydrauliki Silowej HYDROTOR S.A. (WSE:HDR) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

With Przedsiebiorstwo Hydrauliki Silowej HYDROTOR yielding 3.4% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. We'd guess that plenty of investors have purchased it for the income. There are a few simple ways to reduce the risks of buying Przedsiebiorstwo Hydrauliki Silowej HYDROTOR for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Przedsiebiorstwo Hydrauliki Silowej HYDROTOR!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Przedsiebiorstwo Hydrauliki Silowej HYDROTOR paid out 50% of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Przedsiebiorstwo Hydrauliki Silowej HYDROTOR's cash payout ratio last year was 23%, which is quite low and suggests that the dividend was thoroughly covered by cash flow. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

While the above analysis focuses on dividends relative to a company's earnings, we do note Przedsiebiorstwo Hydrauliki Silowej HYDROTOR's strong net cash position, which will let it pay larger dividends for a time, should it choose.

Remember, you can always get a snapshot of Przedsiebiorstwo Hydrauliki Silowej HYDROTOR's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Przedsiebiorstwo Hydrauliki Silowej HYDROTOR has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was zł1.3 in 2011, compared to zł1.0 last year. This works out to be a decline of approximately 2.2% per year over that time. Przedsiebiorstwo Hydrauliki Silowej HYDROTOR's dividend hasn't shrunk linearly at 2.2% per annum, but the CAGR is a useful estimate of the historical rate of change.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. In the last five years, Przedsiebiorstwo Hydrauliki Silowej HYDROTOR's earnings per share have shrunk at approximately 9.6% per annum. If earnings continue to decline, the dividend may come under pressure. Every investor should make an assessment of whether the company is taking steps to stabilise the situation.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. First, we like that the company's dividend payments appear well covered, although the retained capital also needs to be effectively reinvested. Earnings per share are down, and Przedsiebiorstwo Hydrauliki Silowej HYDROTOR's dividend has been cut at least once in the past, which is disappointing. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Przedsiebiorstwo Hydrauliki Silowej HYDROTOR out there.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Przedsiebiorstwo Hydrauliki Silowej HYDROTOR (of which 1 makes us a bit uncomfortable!) you should know about.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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